If you invest in NPS (National Pension System) in 2023, then I am sure you would be interested in knowing the following:
- How much money you can accumulate in NPS by retirement?
- How much NPS retirement corpus will you have?
- How much tax-free withdrawal is allowed from NPS at retirement?
- How much will be your retirement NPS pension?
For answering such questions, I have created a small free excel NPS calculator. This NPS calculator acts as a tool that you can use to estimate the NPS retirement corpus and monthly pension when you retire at 60.
You can call it NPS maturity Value calculator or NPS family pension calculator or National Pension Scheme calculator or NPS monthly pension calculator too.
It is a simple, easy-to-use and can be used as a NPS Pension Calculator as well. It’s a basic version and hence, illustrates only the following:
- NPS Corpus accumulated by retirement (age 60)
- Tax-Free Lumpsum withdrawal available
- Pension amount or annuity payable on retirement (after the purchase of annuity using minimum 40% of the NPS corpus accumulated)
Under latest NPS rules 2023, you are not allowed to withdraw the entire amount at maturity and need to purchase annuities worth at least 40% of your accumulated NPS corpus at retirement. The remaining 60% of the corpus can be withdrawn tax-free. This annuity purchased is the source of pension income after retirement. Hence, once you are able to estimate your final retirement NPS corpus, you can then easily estimate post-retirement monthly pension using prevalent annuity rates.
So here is the link to download:
Note – The new pension scheme calculation formula is already embedded in the NPS calculator excel sheet but please remember that the calculations and figures shown by the NPS calculator are indicative only. Is this NPS Tier 1 and Tier 2 calculator? You can say that. Or just assume that Tier 1 (which is locked-in till retirement) is the one being used mostly for actual retirement planning.
This National Pension Scheme Calculator gives a reasonable idea of how much retirement savings can you do using NPS. A lot of people have been looking to download NPS excel calculator and hence, will find this useful as a pension calculator.
As you already know, the government gives extra tax benefits via additional deduction of up to Rs 50,000 per year to NPS investors under Section 80CCD (1B). This benefit is in addition to the Rs 1.5 lac limit of Section 80C.
By investing Rs 50,000 per year in NPS (or less than Rs 5000 per month in NPS), you can create a large enough corpus by the time you retire (assuming you start saving early). And since NPS can give market-based returns if you choose correct asset allocation between Equity, Corporate Bonds and Government Securities, it is a fairly decent product to have in your retirement savings portfolio.
With this NPS calculator, you will know how much Pension and tax-free lump sum amount you will get at retirement at 60.
As for the NPS Calculator Inputs, you need to provide the following:
- Your current age (assumed you start investing at this age)
- Retirement Age – fixed here at 60
- Monthly NPS contribution
- Annual increase in monthly contributions
- Asset Allocation of NPS portfolio (to be provided for Equity, Government Bonds and Corporate Bonds)*
- Starting Corpus if any (if you put lumpsum at the start of NPS)
- Lumpsum withdrawal at retirement (can be between 0% to 60%)
- Amount used for Annuity Purchase (can be between 40% and 100%)
- NPS Annuity Rate % during the post-retirement period
* With regards to the choice of asset allocation in NPS, the NPS has 2 broad Investment options:
Active – Under NPS Active option, you decide how much to invest (exact percentages) in each asset (and their schemes). As of now, there are 4 asset classes:
- Asset class E – Equity and related instruments
- Asset class G – Government Bonds and related instruments
- Asset class C – Corporate debt and related instruments
- Asset Class A – Alternative Investment Funds
The total allocation across E, G, C and A asset classes must be equal to 100%. And the maximum permitted Equity Investment is 75% of the total asset allocation till the age of 50. Post that, the upper cap reduces by about 2.5% every year to 50% at the age of 60.
Auto – Under NPS Auto option, fund allocation takes place automatically. This option is best for those subscribers who do not have the required knowledge to manage their NPS investments. In this option, the investments are made in life-cycle funds and depending on the risk appetite of NPS Subscriber, there are three options available within ‘Auto Choice’:
- Aggressive – LC75 – Aggressive Life Cycle Fund: This Life cycle fund provides a cap of 75% of the total assets for Equity investment. The exposure in Equity Investments starts with 75% till 35 years of age and gradually reduces and goes down to 15% by the age of 55 and beyond.
- Moderate – LC50 – Moderate Life Cycle Fund: This Life cycle fund provides a cap of 50% of the total assets for Equity investment. The exposure in Equity Investments starts with 50% till 35 years of age and gradually reduces and goes down to 10% by the age of 55 and beyond.
- Conservative – LC25 – Conservative Life Cycle Fund: This Life cycle fund provides a cap of 25% of the total assets for Equity investment. The exposure in Equity Investments starts with 25% till 35 years of age and gradually reduces and goes down to 5% by the age of 55 and beyond.
That was about the NPS portfolio allocation between various assets and schemes.
Now here is what the National Pension Scheme Calculator (or NPS calculator) calculates and shows as output once the inputs are provided:
- The total amount invested (contributed) during the accumulation phase
- The total corpus accumulated
- Amount available as one-time tax-free withdrawal
- Amount used for Annuity Purchase
- Monthly Pension Amount during retirement years
Like any other investment product, NPS also benefits from compounding. So more the invested money, the more the accumulated amount and the larger would be the eventual benefit of the accumulated pension wealth. To find out the Best NPS Funds Managers (2023) and to check returns generated by NPS schemes, please check out this link – NPS Scheme Fund Manager Returns.
Note – Before 2004, the government employees were eligible for pension under the Old Pension Scheme (OPS) system. Under this scheme, the pensioner used to get a starting pension of 50% of the last drawn salary. This was a defined benefit system, unlike NPS which is a defined contribution system. Do check the difference between NPS and OPS to know more.
Here again, is the link to download the calculator:
NPS is one of the few products that have been made specifically for retirement savings. Other good ones being PPF (Public Provident Fund Interest Rates and How to become a PPF Crorepati and Free PPF Calculator), EPF and doing regular long term SIP in Equity Funds. The investment in NPS also offers tax benefit under Section 80C (within Rs 1.5 lac per year) and extra benefit under Section 80CCD (1B) upto Rs 50,000 per year. This makes NPS as an attractive retirement solution for many people who are looking for NPS tier 1 and tier 2 tax benefits. As for NPS Tier 1 and Tier 2 which is better? Since Tier 1 has a lock-in practically till retirement, its better option for retirement planning. Tier 2 is best for non-retirement related savings – which can be for other financial goals as well.
But it must be noted that whether it should be the only retirement product that you invest in or not is debatable. There is a case for investing separately in equity funds for retirement as well.
Hopefully, this excel based NPS Pension calculator 2023 will help you understand the retirement savings product NPS better and also act as a decision-making tool to make informed investment decisions about how much to invest in NPS for retirement savings.